We are now in a different game. High productivity, diversified markets, and customization all coexist. There will still be high-volume production at the bottom end; China and India are increasingly handling that segment. But for every type of product now, there is so much market segmentation. People make profits now by catering to many different ways of life. Food, for example — from organic to exquisite gourmet foods, the choices are continually widening.
S+B: And organizations are different as well?
Perez: Yes, each surge brings with it a new organizational paradigm, new best practices, a new “common sense.” No one today would propose a centralized, rigid, top-down organizational structure, where you cannot communicate across functions except through your bosses, but that was precisely what Alfred Sloan set up at General Motors, to great advantage at his time. With today’s communications and flexible technologies, agile creative networks make more sense and lead to much more productivity.
The Frenzy of Installation
S+B: Where are we, then, in 2005, in our particular surge?
Perez: Well, historically there have been two major periods in each surge, with a critical break between them. That’s where we seem to be now, in the break.
I call the first half Installation, because we’re installing the new technology in the economy, and the new paradigm in the business and culture. This period is led by investment capital in alliance with young technological entrepreneurs, and it begins by confronting the “dinosaurs,” the powerful established institutions from the previous paradigm, which are now obstacles to change.
S+B: Why did the dinosaurs need to be confronted in the first place?
Perez: There are two types of dinosaurs inherited from the previous paradigm: the institutional framework (basically the rules of the game that governments establish for business in each age) and the mature industrial giant corporations. All of these will eventually be transformed and modernized. The industrial giants have reached limits to growth and innovation, but most of them still can’t give up their old practices, even when they see the need to. The electric refrigerator and the vacuum cleaner had been truly fantastic innovations, but by the 1970s innovation had devolved down to the electric knife and electric toothbrush. The appliance companies were still producing a lot of money, but they didn’t know how to invest in or design the new types of appliances that semiconductors would make possible.
S+B: In other words, what people call a “mature market” is more like a failure to develop new types of products when the old paradigm has run its course.
Perez: Yes. These companies are like J.P. Morgan at the dawn of the age of the automobile. He refused to invest in the Ford Motor Company because, he said, “That’s just a toy for rich people.” Trains and horses were good enough.
S+B: So who does put up the money during Installation?
Perez: It’s a new wave of bold financiers with entrepreneurial drive; in our surge, it was the new venture capitalists of the 1970s and ’80s. They looked around and saw a bunch of technologists, building and using little microprocessor chips. Suddenly these technologists were promising candidates for investment. After the first few financiers make money, many more flock to the feast.
By the 1980s, we had two economies side by side. The old economy was in decline; it was the economy of stagflation, high unemployment and high inflation. The New Economy was getting incredible returns — 30 to 60 percent profit, 60 to 80 percent growth. This was like a “strange attractor” in chaos theory: It drew money rapidly out of the old industries into the new technologies, which were reshaping the economy, and, as successes multiplied, all available money was absorbed into the game. Soon we had a casino atmosphere that encompassed all investment. Or, you might say, Installation culminates in a time of “frenzy” (in our own time, the high-tech bubble of the roaring 1990s). There was excess investment in dot-coms and especially in telecommunications. And that was a good thing.